Twenty years ago, on September 16, 1992, sterling was forced out of the ERM amid extreme market turbulence. It was a political catastrophe that cast a long and baleful shadow over the then government.

It ripped open divisions in the Conservative Party. It hardened battle lines in the bitter debate over Britain’s place in Europe. It destroyed tolerance in the party, and laid finally to rest the notion that loyalty was its secret weapon. The aftermath inspired more myths than the Greeks.

Margaret Thatcher and I took sterling into the ERM in 1989 to general applause. Our decision was not some reckless flight of fancy. A poll in the Financial Weekly suggested that 97 per cent of business leaders wanted sterling to join, 66 per cent of whom did not care at what exchange rate we entered. The CBI, TUC, Parliament, press and public were overwhelmingly in favour. Entry had been proposed previously by Geoffrey Howe and Nigel Lawson, but – reinforced by advisers – Margaret had said “No”.

By October 1989, inflation was rising ominously and interest rates were at a ruinous 15 per cent; all the ingredients of a serious recession were in the mix. Margaret cared about this as much as I did. We had run out of other anti-inflationary options – and so sterling entered the ERM.

Margaret had changed her mind to “Yes” because circumstances had changed. Later, she was to change it back again but, at the time of entry, she was strongly in favour – indeed, to kill inflation, she even contemplated entry at a higher exchange rate.

Because our economic sickness was dire, the remedy was painful. Many were hurt, especially individuals and small businesses, while the Government was seen as uncaring. Then, as now, we were not. Our intention was to end the curse of rising prices and the strict medicine worked: by 1992, interest rates and inflation had begun to fall. A platform for growth was set and when, five years later, the government was defeated, inflation was 2.6 per cent, interest rates had fallen to 6 per cent, the national accounts were balanced and we had enjoyed five successive years of healthy growth. Norman Lamont and Ken Clarke can be proud of their role in this transformation.

No government in living memory passed on such an inheritance – and no government in history squandered it as comprehensively as New Labour.

Are there things, in retrospect, I would have done differently? Of course, and the options run through my mind like an old movie. Failures – like our ERM exit – linger longer in the mind than successes, but “if only” is a pointless consideration.

The politics of ejection from the ERM were truly terrible and scarred the government beyond repair. I had no doubt about that – or what it would mean. I had recommended entry and presided over exit. There was political blood on the ground and the government’s opponents – within and beyond the Conservative Party – took full advantage. Anti-European sentiment was refreshed and reinvigorated.

I decided to resign. Colleagues and officials urged me not to do so. It would be running away, I was told. I stayed – but have never been sure that was right.

All this is now in the past, and the cold unblinking eye of history will put it in proper perspective. But its political legacy lives on in our fractious European debate.

Europe faces acute dilemmas. The concept of the European Union is noble: the reality is not. Members are divided on the crisis in the eurozone, budget deficits, control of the central bank, nuclear power, and many aspects of foreign policy. It is a Union in name – but not in policy.

More than 20 years ago, I opted out of the euro. I did so for complex reasons, but most obviously because I believed that a monetary union without a fiscal union was economically lop-sided. Other European leaders didn’t agree. For them, the euro was a political priority. We now see the result of putting politics before economics.

The short-term threat to the eurozone has been held at bay by committing vast sums of money. But nothing has been done to solve the underlying conundrum: how can inefficient economies co-exist with more efficient economies in the same currency zone?

The plain truth is that, over the long-term, they can’t: to survive, they must become more efficient. But such a transformation requires long-term financial support, and painful policies such as cutting wages to improve competitiveness. It will be neither easy, nor quick, and may not even be possible. Creditor nations need to understand there is a limit to enforceable austerity: if the burden imposed is too severe, liberal democracies may not be able to deliver. It is worth remembering that Greece, Italy, Portugal and Spain are not long-standing and mature democracies.

Events in the eurozone are coming to a tipping point. No one can be certain how they will fall out, but we can begin to see an outline of the future. I expect the eurozone to survive largely intact. German plans for deeper integration – to fiscal union and a federal structure – will proceed, albeit very slowly. Throughout the years of this interregnum, eurozone growth will be stunted by uncertainty and indecision.

Some eurozone members may leave the evolving federal structure, either through economic weakness or political unwillingness to pool fundamental decision-making. Those that remain – the new inner core – will be more unified, more compact, more federal, more self-contained and – crucially – will change the dynamic of the whole European Union. We will not be part of the euro inner core. Nor do we wish to be. It is against our history, our instincts and our interests. Our situation will change because their situation has changed.

The changes Germany is leading are so profound that they cannot be smuggled through in a clandestine way. Every nation in the EU will be affected. As integration deepens, we will not be alone in seeking a credible structure outside the federal core, but within the single market and the wider EU. A treaty – requiring unanimity – may be necessary.

We must be clear about our objectives. No mainstream political party wishes to leave the EU. In a world that is becoming more integrated, it would be quixotic: a romantic folly. But British electors do not wish to join the euro. A large majority is opposed for the foreseeable future, although the prudent would not close the door for all time – but, even for pragmatists, the circumstances may never be right. It will not happen in my lifetime.

If a unified euro-core does develop, it will be a fundamental change. It may be incremental, and take years, but no one should doubt its impact. It is also an opportunity. If an inner core can radically alter its relationship with the EU as a whole, then non-core members may feel free to do the same. I believe they should. There is a bargain to be struck. Our relationship with Europe has been a running sore in British politics for more than half a century. The opportunity is coming to settle on one that is more amenable to our interests and our instincts.

For too many years, debate on Europe has been conducted more by gut instinct than rational consideration – and with maximum ill-will. It is time to examine the facts forensically and make informed judgments upon them. All our futures depend on it.